2024 (9) TMI 1394 - HC - GST

Petition challenging audit and intimation liability orders under Section 65 CGST Act allowed after NCLT resolution plan approval

Karnataka HC allowed petition challenging audit and intimation liability orders under Section 65 of CGST Act, 2017 for financial years 2018-19 and ... Extinguishment of pre-resolution claims upon approval of a resolution plan - binding effect of an approved resolution plan on creditors and statutory authorities - moratorium under Section 14 of the Insolvency and Bankruptcy Code - keeping proceedings in abeyance during moratoriumExtinguishment of pre-resolution claims upon approval of a resolution plan - binding effect of an approved resolution plan on creditors and statutory authorities - moratorium under Section 14 of the Insolvency and Bankruptcy Code - keeping proceedings in abeyance during moratorium - Whether the impugned audit order dated 29.04.2024 and subsequent intimations and proceedings in respect of financial years 2018-19 and 2019-20 could be continued after approval of a resolution plan by the NCLT. - HELD THAT: - The Court applied the principle laid down in Ghanashyam Mishra and Sons (as accepted by this Court in Associate De cor Limited) that once a resolution plan is duly approved by the adjudicating authority under Section 31 of the IBC, claims not incorporated in the resolution plan stand frozen and extinguished, and no person is entitled to initiate or continue proceedings in respect of such pre-approval claims. The judgment observed that the petitioner had informed the tax authority of the insolvency proceedings and the NCLT's approval of the resolution plan, yet the respondents proceeded with audit observations, intimations and the impugned order. In view of the binding effect of the approved resolution plan and the moratorium principle requiring abeyance of proceedings relating to pre-resolution claims, the continuation of the tax proceedings and issuance of the impugned order and intimations in relation to FY 2018-19 and FY 2019-20 was without jurisdiction or authority of law and therefore liable to be quashed.Impugned order dated 29.04.2024, the intimation dated 25.05.2024 and all further proceedings arising therefrom in relation to FY 2018-19 and FY 2019-20 are quashed; writ petition allowed.Final Conclusion: The writ petition is allowed and the impugned order, the subsequent intimation and all further proceedings pursuant thereto in respect of the financial years 2018-19 and 2019-20 are quashed as being barred by the approved resolution plan and the moratorium under the IBC. Issues:1. Quashing of orders related to audit and intimation liability issued against the petitioner.2. Extent of jurisdiction of authorities post-approval of Resolution Plan by NCLT.Analysis:The High Court of Karnataka heard a petition seeking to quash an order and notice related to audit and intimation liability issued against the petitioner. The petitioner had undergone Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code. The NCLT had approved a Resolution Plan submitted by NARCL. Despite this, the respondent authorities continued audit proceedings and issued orders for multiple financial years, including after the approval of the Resolution Plan. The petitioner argued that post-approval of the Resolution Plan, all prior claims and proceedings should stand extinguished. The court referred to the Supreme Court's judgment in a similar case and held that claims not part of the Resolution Plan should be extinguished. The court also cited a previous judgment where proceedings were kept in abeyance during a moratorium period. The court concluded that the orders and proceedings against the petitioner were without jurisdiction post-approval of the Resolution Plan.The court noted that the claims against the petitioner for the financial years in question were invalid post-approval of the Resolution Plan by the NCLT. The court relied on legal precedents to establish that once a Resolution Plan is approved, claims not included in the plan should be extinguished. The court emphasized that the orders and proceedings against the petitioner lacked jurisdiction and authority of law after the approval of the Resolution Plan. Therefore, the court allowed the writ petition and quashed the impugned order, notice for intimation, and all related proceedings.